As of November 1, 2020, the minimum hourly salary of around CHF 23 applies to any employee working in Geneva, regardless the place of office of the employer, and irrespective of the employee’s domicile. However, the employee should be usually performing his work in the canton of Geneva, which does not encompass irregular cases such as occasional work from home. It is nevertheless certain that full-time home-office shall qualify as regular place of work.
In essence, all the costs necessary for the performance of work must be covered by the employer, including any office material used from home. This, however, does not require the employer to contribute to the employee’s rent as it would have been due regardless any home-office. The same applies to home internet, electricity, etc.
Employment agreements generally specify the place of work of the employee. In such a case, unless the law or administrative decision requires so, the employee is entitled to perform his work from the company’s office building.
If the pandemic situation allows, and the administrative decisions do not impose mandatory home-office, then the employees are required to be present in the company’s office during working hours, as it is usually specified in the employment agreement.
If the employer makes it compulsory to wear a mask in the office, he must provide masks and pay for them. Employers are required to pay the costs incurred by their employees in carrying out their work, and the masks made available must be certified and guarantee a certain level of safety.
Before dismissing an employee, the employer must remind the person concerned that he or she must wear a mask and ask the employee to do so. If the employee persists in refusing to wear a mask, immediate termination may occur.
Immediate dismissal requires an irreparable breach of trust. If, despite multiple reminders, the employee remains often unavailable and does not answer the employer’s calls, immediate termination may occur.
Costs of commuting to work are generally deductible on a lump-sum basis. The majority of legal literature considers that the employee may claim higher effective costs, but that the administration is not entitled to refuse a lump-sum deduction in their absence.
Indeed, a room at your domicile that is exclusively equipped for working from home may be considered as a necessary cost of the employee. As such, the portion of rent is deductible insofar as work from home is mandatory, as opposed to a free choice of the employee. The employee should exclusively use this room for work, and not for personal purposes.
Office equipment should be provided or covered by the employer. As such, these are not the costs of the employee and may not be deducted from his income.
In principle, tax on employee’s income is due in his state of residence, or in the state of regular work where the duration generally exceeds 183 days. Exceptionally, countries bordering with Switzerland have signed protocols that allow Switzerland to continue to withhold tax on cross-border employees generally working in Switzerland, but who are currently working from home in other countries due to pandemic restrictions.
Unlike the situation with taxes, the employee should work not more than 25% of time from abroad to be exempt from Swiss social security. As such, this employee should not work for more than 1,25 days a week from abroad.
A conventional electronic signature is only allowed for contracts that can be concluded in verbal form, which is the majority of contracts under the Swiss law. Conversely, where the law provides for a signature, only qualified e-signatures are valid.
There is no obligation to indicate home-office days on the salary certificate (except for a few cases of employees with a company car and deducting the journey from home to work). Reimbursement of lump sum expenses and expense regulations continue to apply despite the increase in home office.
For Swiss residents, a capital gain realised on the sale of privately held shares in a Swiss or foreign limited liability company is generally exempt from income tax, while dividends and liquidation bonuses constitute taxable income. However, as some creative minds have devised complex structures to receive a dividend from their company disguised as an exempt gain, tax legislation and practice is developing accordingly to tackle these artificial arrangements. One such case is that of partial indirect liquidation.
This occurs when a shareholder sells shares in a target company to a company or an independent entrepreneur with a surplus, while the target company sold contains substantial accumulated profits that are not needed for continued operation. These profits are quickly distributed to the buyer without any tax because he can immediately write off the value of these acquired shares at a price that has been determined, in part, on the basis of the target’s substantial retained earnings. There is a suspicion of abuse when the buyer uses this profit distribution to finance the acquisition, because overall these dividends are then returned to the seller, but in the form of a capital gain, so it is a dividend, just with extra steps.
However, there are some reasonable limits to this recharacterisation. First of all, the seller must cooperate with the buyer, otherwise it is illegitimate to tax the seller who has no idea how the buyer will finance the acquisition. Nevertheless, it is sufficient that the seller has a reasonable suspicion of such an intention of the buyer.
Secondly, the sale must involve at least 20% of the share capital, although subsequent sales of packages and concerted sales by several shareholders are also relevant, provided that this threshold is reached in aggregate within 5 years. The distribution of the target’s profits to the acquirer must also occur within 5 years, but may take various forms, including an upstream merger.
If the conditions for an indirect partial liquidation are met, the taxable income logically amounts to the sale price. However, the seller cannot reasonably be expected to empty the company completely before the sale, because on the one hand some accumulated profits are still needed for the continuation of the business, and on the other hand Swiss law provides for strict rules on the distribution of dividends, since some profits have to be kept as legal reserves. As such, the taxable income is therefore reduced to the funds that could be distributed as dividends according to Swiss or foreign law governing the target company. Furthermore, we cannot reasonably object to the fact that even this disposable profit relates to significant assets of the company, as opposed to mere cash, otherwise the distribution of the disposable profit would require the liquidation of these assets and would hinder the continuation of the business. Finally, as the important criterion concerns the possible distribution of profits to the buyer to cover the purchase price, the taxable income can only be assessed up to this amount.
It is important to note that the moment of realisation of this taxable income occurs when the seller acquires a legal and certain claim for the purchase price against the buyer. Since the conditions for partial indirect liquidation may sometimes be fulfilled in subsequent years, especially in the case of successive transfers of shares, the tax authorities have to resort to reassessing the taxes of previous years.
Although the relationship between the director and the company is mainly qualified as a mandate and not as an employment contract, his fees are considered as coming from the salaried activity from a tax point of view. Thus, the fees are subject to withholding tax to be paid by the Swiss employer if the director is not a Swiss resident.
However, if his usual place of work is not in Switzerland either, the remuneration may only be subject to withholding tax to the extent that it covers his position as an administrative or supervisory body, e.g. signing the financial statements, preparing the general meeting or other inalienable rights of the board of directors. A clear and reliable division between the fees of a supreme body and the salary received as an employee, even if it is a managerial employee, is also necessary.
Depending on the residence status of the director, his place of work and his nationality, but also on his affiliation to compensation funds abroad and the rate of work carried out for the Swiss company, it may be necessary to collect and pay social security contributions from his salary or fees.
It is the Swiss employer’s duty to find out the situation of the employees and to determine whether withholding tax or social security contributions are necessary. Thus, it is recommended to analyse the situation clearly in order to avoid fines, interest on arrears and unforeseen charges.
The remuneration of directors is basically considered as salary subject to social security contributions, notwithstanding the absence of an employment contract as such. Therefore, the company must pay social security contributions on all the remuneration received by the director, regardless of whether it is not in the form of a real salary but consists of tantièmes, fees or attendance fees.
Moreover, even in the absence of any shareholder-director remuneration, which is often the case for start-ups during the initial development phase, the company is obliged to affiliate with a cantonal compensation fund. In the case of remuneration, it is also necessary to register with the social security system or, depending on the amount of salary, with the occupational pension scheme.
However, the absence of a salary does not necessarily exempt you from social security contributions. On the one hand, Swiss residents are obliged to pay AHV even if they are not gainfully employed, the amounts being calculated on the basis of their social status. In addition, the authorities often see an abuse in the fact that a director-shareholder does not pay himself a salary and thus avoids social security contributions, thus only receiving a dividend which is not itself subject to contributions. However, after the development phase of a new company, the competent authorities may demand social security contributions even if there is no salary, although such cases are rare in practice.
At present, only over-indebtedness and a loss of capital on the balance sheet trigger the duty to act of the board of directors. The reform of the Code of Obligations now provides for the obligation to monitor solvency. Indeed, creditors only file for bankruptcy if they are not paid on time, regardless of the company’s lack of equity.
Although Swiss commercial law does not require the presentation of a cash flow statement, the lack of liquidity is the most important risk and the most common reason for the bankruptcy of a company. The board of directors is then obliged to act swiftly and take the necessary measures to ensure solvency, or even to propose reorganisation measures to the shareholders if such measures fall within the competence of the general meeting.
Among several possible measures, the legislator places particular emphasis on the possibility of applying for a debt-restructuring moratorium. It is indeed possible to apply for an instalment plan directly with the creditors whose debts cannot be discharged in time, or even to agree on a partial waiver of their claims. The debtor can apply to the judge for a debt-restructuring moratorium, provided that there are prospects of reorganisation or that the future approval of a composition agreement appears possible.
In this case it is important to be able to prove the reliable chances of the company’s survival, to reorganise the balance sheet in order to present the best situation to the creditors, but above all to be aware of the current financial situation.
Swiss labour law strictly regulates the termination of the employment contract. Except in serious cases allowing for immediate dismissal, an employee can only be fired after giving at least one month’s notice in the first year of employment, two months in the second and three months in the third. However, in the case of a trial period, which can last up to a maximum of 3 months, the notice period is shortened to 7 days.
The trial period serves as a safeguard for the employer and the employee to get to know each other better before committing themselves to a longer employment contract. Indeed, it allows the employer to assess the knowledge and skills of his new employee. Therefore, when one employment contract is succeeded by another, the probationary period is generally not applicable because there is no longer any reason for it, as the employer and employee already know each other quite well.
However, there are exceptions, in particular when the new employment contract provides for significantly different requirements or tasks compared to the old contract and the employer cannot yet form a clear opinion about the employee’s ability to take on these new responsibilities. In these circumstances, the trial period is justified and can be applied to this new employment contract.
It should be made clear that the periods of leave are counted not on the duration of each individual contract, but on the duration of service, in the sense that the duration of the probationary contract is added to the contract of indefinite duration that replaces it for the purpose of calculating the notice periods for dismissal.
Failure to comply with the conditions for dismissal often leads to employees paying additional charges and compensation, which is why we advise careful analysis of each situation before making a decision.
Dividends are decided by the shareholders at the ordinary general meeting and are based on the closed financial statements not older than 6 months. Indeed, the meeting must be held no later than 6 months after the end of the accounting year.
In principle, shareholders are not allowed to have the share capital returned to them until the liquidation is completed, but the appropriation of profits is also strictly regulated. Currently, 5% of the year’s profit must be allocated to the general legal reserve until it reaches 20% of the paid-up share capital (“first allocation”). In addition, and except for holding companies, 10% of dividends exceeding 5% of the share capital is also allocated to the reserve until it reaches 50% of the share capital (“second allocation”). Thus, only the profits remaining after these allocations can be distributed as dividends.
In addition to the distribution of profits, shareholders may have their contributions made directly to the company and recorded in the general reserve distributed, but only on the amount exceeding 50% of the share capital. The reform now provides for an increase in the first allocation to 50% of the share capital, and at the same time abolishes the second allocation. It will come into force in 2022, the date not yet set by the Federal Council.
It must be noted that there are other legal and statutory reserves that must be respected, which is why the dividend distribution must take them into account. It is therefore advisable to make a careful calculation in order to avoid a violation of the law.
Employers in Switzerland are obliged to register vacancies with the regional employment office in industries with an unemployment rate of at least 5%. This concerns one in ten jobs. However, it is not necessary to advertise if an applicant was already working in the company or if the applicant is a person close to the management, or for the duration of the work not exceeding 14 days. Apprenticeships and traineeships that are part of a training course are also not subject to the obligation to advertise, nor are jobs that are filled by jobseekers registered with the Regional Job Centre.
Where such an obligation applies, it is necessary to wait at least 5 working days after the job has been advertised at the Regional Job Centre before applying elsewhere. It should be noted that headhunters carry out these advertisements on behalf of the employer.
Within 3 working days, the Regional Job Centre proposes candidates whose files are relevant or finds that it does not have any. The employer then informs it of the candidates it has selected and invited to a job interview or aptitude test, whether it has hired any of the candidates proposed or whether the position remains vacant.
Non-compliance with the obligation to advertise vacancies is punishable by a fine of up to CHF 40,000. It is therefore strongly advised to examine on a case-by-case basis whether such an obligation should be respected in order to reduce the risks.
The liability of companies is limited by their funds, but directors are jointly and severally liable for unpaid debts to the extent of the losses accumulated since the discovery of the over-indebtedness and the bankruptcy of the company. It is indeed their inalienable duty to file for bankruptcy of a company in case of over-indebtedness, but there are alternatives.
Firstly, the easiest thing to do is to postpone the shareholder’s claim. The postposition agreement provides that the claim only accrues to him when the company is able to pay all debts. In other words, there is no need to declare the company bankrupt as long as it is still able to pay the other debts that the shareholder has postponed.
It is also possible that the company’s balance sheet is negative while there are economic values not disclosed in the financial statements. For example, it is possible that the market value of a fixed asset exceeds its book value, the difference being called “hidden reserves”, in which case they must be taken into account when over-indebtedness arises because, in reality, the company has enough – admittedly hidden – funds to honour its debts. Furthermore, already when the loss exceeds half of the share capital and legal reserves (“capital loss”), it is possible to revalue a property or a holding at its market value for accounting purposes if it exceeds its acquisition cost or cost price. This requires a prudent valuation and the certification of the auditor. However, it represents an accounting profit which is subject to tax.
It should also be noted that the company may be in difficulty only temporarily, for example due to the confined or seasonal nature of the business, such as a hotel in the mountains. Thus, a clear and reliable financial analysis shows that the company has every chance of emerging from the debt situation and that it is therefore not necessary to declare bankruptcy.
In any case, it is the responsibility of the directors to be aware of the financial situation of the company and to take measures already in case of a capital loss. This requires a clear and up-to-date view of the ledger. The reform of the Code of Obligations introduces the obligation to audit the accounts in case of a threat of overindebtedness or loss of capital.
Some taxes, such as VAT, stamp duty and withholding tax, must be declared and paid spontaneously, with the tax authority intervening only in the event of a request for additional information or a tax audit. In contrast, direct federal tax and cantonal and communal tax on profit and capital are notified by a tax authority which determines the tax burden on the basis of the taxpayer’s declaration and information, the so-called “mixed” procedure.
Under this procedure the taxpayer has to pay taxes – as well as costs and interest – on the basis of the final tax slips. However, the administration may also issue a provisional tax assessment or request advance payment of taxes in instalments. Taxes collected on the basis of a provisional assessment or on the basis of instalments are set off against the taxes due on the basis of the final assessment. This results in a balance in favour of the taxpayer or the tax authority at the time of the tax due date, which does not necessarily correspond to the date of notification of the tax slips and varies between direct federal tax and cantonal and municipal taxes.
Direct federal tax generally falls due on 1 March of the calendar year following the tax period concerned, but interest on arrears only accrues from the 31st day following notification of the provisional or definitive tax assessment slip, but not on instalments.
In Geneva, cantonal and communal taxes are generally due on the last day of the fiscal year concerned, and the interest on arrears runs from the 31st day following this date. In addition, interest on arrears runs on unpaid instalments.
It is therefore advisable to check the balance of cantonal and municipal taxes on the last day of the tax period, taking into account carryovers from previous years and advance payments, and if necessary to request additional payment slips in order to pay the estimated tax balance on time and avoid default interest.